The study provides recommendations for streamlining tax expenditures in addition to representing a proposal for the integral and systematic evaluation of tax expenditures in Jordan. It also provides recommendations for devising a rules-based mechanism for the granting of tax incentives through the Council of Ministers. Highlights of these recommendations are provided hereafter.
Evaluating Tax Expenditures
· Create a Tax Expenditure data framework and aim at quantifying annually
· Review impact of programs that use tax expenditure mechanisms
· Produce an annual tax expenditure study to evaluate proposed changes to the tax law and estimate the impact on tax expenditures, as well as changes on tax expenditures over time
Tax Expenditures in the Budget Process
· Publish annual tax expenditure report as part of the annual budget process and subject to scrutiny
· Impose thresholds and/or ceilings, particularly for exemptions granted through the Council of Ministers, if this mechanism remains
Investment Incentive Scheme
· Provide clear sunset clauses for grandfathered incentives and for investments operating in the Development Zones
· Eliminate favoritism with certain sectors of the economy
· Restructure the cumbersome, multi-layered investment incentive scheme and consolidate into a new scheme that is neutral with respect to the various categories of investment
Council of Ministers Decisions
· Eliminate discretionary power
· Set a target to be granted in exemptions per year
· Set policies and procedures (i.e. max allowance per investment; sunset/commencement rules)
· Assess the success or failure of the incentive program
An overview of the recommendations targeted towards the specific tax categories are provided hereafter.
Personal Income Tax
· Couple rates proposed in the new draft Income Tax Law with further reduction in the exemption allowance to make progressivity effective
· Increase the withholding rate as final taxon interest income and income from lottery prizes
· Limit deduction to JD 5,000 for principal taxpayer and JD 10,000 for families
Business Taxation
· Limit exemptions to certain entities, including some income sources of non-profit organizations
· Eliminate multiplicity of laws providing income tax incentives
· Set out clear commencement rules for income taxation in Development and Free Zones
· Introduce a special tax regime for SMEs
· Ensure that new Investment Law does not violate provisions found in the Income Tax Law
General Sales Tax
· Limit zero rate application to exports
· Keep only one reduced rate schedule, either 4% or 8%
· Eliminate items in the exemption list, or move merit items, particularly food items, to the reduced rate schedule of 8%
· Revoke exemptions to specific sectors through the new Investment Law
· Constrain preferential rate to a small number of basic necessities considered to be material components of low income household consumption
Custom Duty
· Rationalize list of entities and items on zero rating list
· Do away with ad hoc decisions on special exemptions by Council of Ministers, or establish a rule-based approach
Real Property Tax
· Increase property tax rate on vacant land
· Consider moving to capital valuation coupled with a reduction in tax rates
· Eliminate, or provide homestead exemption forowner occupied housing
· Lower the transfer tax rate
· Substitute with capital gains tax eventually, or compensate loss from annual property tax collections
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